April 27, 2007


                          CBCA 682-RELO


                In the Matter of LINCOLN E. BURTON


     Lincoln E. Burton, Acampo, CA, Claimant.

     Susan C. Lauga, Authorized Certifying Officer, Administrative Certification and
Disbursement Section, Office of the Chief Financial Officer, Department of Agriculture,
New Orleans, LA, appearing for Department of Agriculture.

DeGRAFF, Board Judge.

     The United States Department of Agriculture (USDA) transferred Lincoln E. Burton
from one permanent duty station to another and authorized him to incur reimbursable real
estate transaction expenses in connection with the transfer.  Mr. Burton, who reported to his
new duty station in October 2005, decided to purchase a lot and have a house constructed
instead of purchasing an existing house.  The agency asks us for an advance decision
pursuant to 31 U.S.C.  3529 (2000), in order to allow it to determine which of Mr. Burton's
transaction expenses ought to be reimbursed.

                            Background

     In November 2005, Mr. Burton closed on a loan to purchase a lot.  According to the
settlement statement, he incurred the following transaction expenses, for which he requested
reimbursement:

        $ 275.00*   Appraisal fee
       17.00*  Credit report fee
     393.52    Closing fee paid to title company
       65.00   Recording fee
       75.00   Signing fee 
     250.00    Lender's title insurance premium 

     In December 2005, Mr. Burton closed on a loan with a second lender to begin
construction of his house and to pay off the loan he obtained to purchase the lot.  According
to the settlement statement, he incurred the following transaction expenses, for which he
requested reimbursement:

      $   550.00    Appraisal fee ($50 paid at closing and $500 paid outside of closing)
         3816.50*   Origination fee paid to lender (1% of the loan amount)
       19.00*  Flood fee paid to lender
     575.00*   Closing fee paid to title company
     100.00*   Notary fee paid to title company
         1452.00*   Lender's title insurance premium
     926.00    Fees paid to title company related to construction
       25.00*  Fee paid to title company for lender's environmental protection
     100.00*   Additional escrow work charges paid to title company
       75.00*  Recording fee (deed of trust)

     In June 2006, Mr. Burton and his second lender modified the construction loan in
order to provide permanent financing for his house.  Mr. Burton's lender explained that its
practice is to charge most of its fees when it makes the construction loan, not when the
construction loan is modified and made permanent.  According to the settlement statement,
Mr. Burton incurred the following transaction expenses in connection with the permanent
loan, for which he requested reimbursement:  

        $ 181.38    Closing fee paid to title company
       75.00   Notary fee
       75.00   Recording fee (to record the loan modification agreement)
       25.00   Fee paid to title company for lender's environmental protection
 
In addition, according to the June 2006 settlement statement, Mr. Burton's lender charged
a loan origination fee of $3816.50 in connection with the permanent loan and credited
Mr. Burton with having previously paid this amount.  

     Mr. Burton submitted a voucher and claimed reimbursement for all of the expenses
listed above, which total $9070.40.  After USDA audited the voucher, it reimbursed
Mr. Burton for the expenses marked above with asterisks, which total $6454.50.  

     Mr. Burton submitted a reclaim voucher for the amount which he had not been
reimbursed.  After a second audit of Mr. Burton's voucher, USDA determined that
Mr. Burton had incurred duplicate expenses as a result of his decision to construct a new
house, and decided it had reimbursed Mr. Burton $1870.62 too much.  It determined it ought
to have reimbursed $275 for the appraisal fee and $17 for the credit report fee shown on the
November 2005 settlement sheet, $3816.50 for the loan origination fee and $19 for the flood
fee shown on the December 2005 settlement sheet, all of the amounts shown on the June
2006 settlement sheet, plus $25 for what USDA identified as "title insurance" and $75 for
what USDA identified as a "signing fee" paid in connection with the June 2006 transaction.
We can find neither of these latter two fees listed on the June 2006 settlement sheet.

     After several USDA employees expressed differing views as to how much Mr. Burton
ought to be reimbursed, USDA asked for our assistance in resolving Mr. Burton's claim. 
USDA poses four questions.  It asks whether charges for an item (e.g., an appraisal) should
always be thought of as duplicate charges if the item appears on more than one settlement
statement.  It also asks whether an agency is required to reimburse expenses incurred in
connection with modifying a construction loan in order to convert it to a loan for permanent
financing.  It asks whether it ought to reimburse the highest charge for an item which appears
on more than one settlement statement.  Finally, USDA asks whether it appropriately
determined which of Mr. Burton's claimed expenses are reimbursable.

     In response to USDA's request for an advance decision, Mr. Burton informs us that
he takes issue with very few of the conclusions reached by the first USDA audit.  In addition
to the $6454.50 he was reimbursed, Mr. Burton believes he ought to be reimbursed $550 for
an appraisal fee instead of the $275 USDA initially allowed.  He also believes he ought to
be reimbursed an additional $181.38 for the settlement fee paid in connection with the loan
for permanent financing.  

                            Discussion  

     The expenses an employee incurs in connection with the construction of a residence
are reimbursable provided the expenses are comparable to the expenses which are
reimbursable in connection with the purchase of an existing residence.  41 CFR 302-
11.200(f)(10) (2005).  In general, an agency should determine the appropriate reimbursement
by looking primarily at the expenses incurred in connection with a permanent financing
transaction because the expenses incurred incident to a permanent financing transaction are
most like the expenses an employee would incur in connection with the purchase of an
existing residence.  When the construction process involves multiple closings, the employee
might incur similar fees and expenses more than once.  However, an employee may be
reimbursed only once for each type of expense which is allowable according to the
regulations.  Duplicate expenses and expenses which are incurred solely because the
employee decided to construct a house cannot be reimbursed.  Richard A. Poisel, GSBCA
15330-RELO, 01-1 BCA  31,284 (2000); David G. Winter, GSBCA 14229-RELO, 98-1
BCA  29,361; Brent T. Wahlquist, GSBCA 14163-RELO, 97-2 BCA  29,095; Michael J.
Spann, GSBCA 13685-RELO, 97-2 BCA  29,019; Thomas S. Cushing, GSBCA
13867-RELO, 97-2 BCA  29,022.

     These general rules provide the answers to USDA's questions.  Although it is
theoretically possible that charges for an item which appears on more than one settlement
statement might not be duplicate charges, this would be quite unusual.  As we said above,
an employee may be reimbursed only once for each type of expense.  If an item appears on
more than one settlement statement, charges for the item are usually duplicate,
nonreimbursable charges.  Like duplicate expenses, expenses which are incurred solely
because the employee decided to construct a house are not reimbursable.  Therefore, an
agency is not required to reimburse expenses incurred in connection with modifying a
construction loan in order to convert it to a loan for permanent financing.

     An agency should not simply reimburse the highest charge for an item which appears
on more than one settlement statement.  In general, an agency should determine the
appropriate reimbursement by looking primarily at the expenses incurred in connection with
the permanent financing transaction because the expenses incurred incident to permanent
financing are usually the most representative of those an employee would incur in connection
with the purchase of an existing residence.  Mr. Burton's claim falls outside this general rule
because his lender explained that its practice is to charge most of its fees when it makes the
construction loan, not to charge them later when the construction loan is modified and made
permanent.  For this reason, the expenses Mr. Burton paid in connection with the
construction loan are most representative of those an employee would incur in connection
with the purchase of an existing residence.  

     The following expenses Mr. Burton incurred in connection with the construction loan 
transaction are reimbursable, provided they are customarily paid by purchasers in the area: 
The appraisal fee (provided it does not exceed the customary cost of an appraisal), the loan
origination fee, the flood fee (if required by the lender), the closing fee, the notary fee, the
lender's title insurance premium, and the recording fee.  The fees paid to the title company
which related to construction are not reimbursable because they would not have been
incurred if Mr. Burton had purchased an existing house.  We do not know whether the fee
paid to the title company for the lender's environmental protection or the additional escrow
work charges paid to the title company are reimbursable.  USDA will have to determine
whether these two expenses are among the reimbursable expenses allowed by the Federal
Travel Regulation, 41 CFR 302-11.200.  

     Looking at the expenses Mr. Burton incurred in November 2005, we see the appraisal
fee, the closing fee, the recording fee, and the lender's title insurance fees are all duplicates
of fees paid in connection with the construction loan transaction, so they are not
reimbursable.  The credit report fee is a reimbursable expense so long as it does not duplicate
any part of a fee which is reimbursable in connection with the construction loan transaction. 
We have no idea what the "signing fee" is, so we do not know whether it duplicates an
expense paid in connection with the construction loan transaction, whether it is an expense
incurred only because Mr. Burton decided to construct a house, or whether it is an allowable
expense.  USDA will have to determine whether the credit report fee and the signing fee are
duplicate fees or fees associated only with construction and, if not, whether they are among
the reimbursable expenses allowed by the Federal Travel Regulation, 41 CFR 302-11.200.

     None of the expenses Mr. Burton incurred in June 2006 are reimbursable.  The closing
fee, the notary fee, and the fee paid to the title company are all duplicates of fees paid in
connection with the construction loan transaction, and the fee imposed for recording the
modification of the loan agreement was incurred only because Mr. Burton decided to
construct a house.

     We trust this decision provides USDA with the guidance it needs in order to reimburse
Mr. Burton's real estate transaction expenses.




                                   __________________________________
                                   MARTHA H. DeGRAFF
                                   Board Judge